EC efforts to curb the use of black money in elections

This piece of article was shared with me by my friend Hiral Nandu who is a Chartered Accountant and works for a CA firm in Taxation consultancy.

Political parties to go corporate as Election Commission plan new rules to curb use of black money

In an effort to curb the use of black money in the electoral process, the Election Commission now plans to ask political parties to conduct their finances in a corporate fashion by getting their accounts audited and publishing their audited finance sheets annually. The EC has received a host of such recommendations from the country’s auditing regulator — the Institute of Chartered Accountants of India (ICAI) – and will notify the official guidelines to political parties and financial enforcement agencies like the Income Tax department and the Enforcement Directorate (ED) soon.

“The EC will deliberate upon and take up the final recommendations submitted by the ICAI on May 27 and notify all the stakeholders in this regard. The final recommendations by the ICAI will help in making the electoral process free from use of illegal money power,” an official involved in the drafting of the report said.

The recommendations by the top accounting body in the country come in the backdrop of the EC creating an Election Expenditure Monitoring cell within its establishment last year, which has been vital in the conduct of polls in Bihar last year and five other states recently.

The new cell, with the help of the I-T department, seized and intercepted huge sums of cash in poll-bound states and subsequent action by tax authorities led to the realisation of huge hidden tax.

The ICAI, in its final report, has recommended that “all political parties registered with the Election Commission of India may be mandated to apply accrual basis of accounting (reporting transactions on a real-time basis).”

“Every political party to follow March 31 as uniform financial year and consolidated financial statements be prepared incorporating the accounts of taluka, district and state-level party branch accounts,” the ICAI recommendations suggested, adding that all political parties should follow “a common format for presentation of its general purpose financial statements.”

“It is recommended that political parties must be mandated to get their accounts audited by a firm of Chartered Accountants, as appointed by the Election Commission of India.

The auditors should be appointed by rotation every three years,” the 38-page recommendation report of the ICAI said.

It also recommended that political parties must be mandated to “publish their audited accounts annually, which shall be available for the information and review by the concerned stakeholders and the general public at large within six months of the end of the financial year, on the parties’ website.

“Annual financial statements be also published in English in leading national newspaper and in local language in the leading newspaper of the state,” it said.

All registered political parties must be mandated to file the audited financial statements with the EC, the recommendations said, adding that the PAN number of the contributors of funds to the political party may be sought.

Laws relating to donations to political parties

I wonder if there are laws in our country to identify the donations received by the political parties.

This piece of informative input is received from one of my friend Nishit Zaveri who is a Chartered Accountant and a Senior Asscociate at a Big4 firm.

Under the Income-tax Act, donations (to anyone) is not allowable under Section 37(1) of the Income-tax Act, 1961 (the Act) as it is not for the wholly and exclusively for the purpose of the business. However, there are some case laws where the taxpayer could prove the nexus between the donation and the business purpose. Thus, if the taxpayer can prove the nexus, such donation exp. can be allowed. Apparently, no taxpayer will claim donation to political party as an allowable exp. (as nexus and benefit from such donation cannot be proved before Assessing Officer…J J)

Further, the Act specifically disallows any expenditure incurred by assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party by virtue of Section 37(2B) of the Act. Thus, even if such advt. exp. is for the purpose of business still it will not be allowed.

However, the donations are eligible for deduction (50% or 100%) u/s 80G/80GGB/80GGC of the Act (if the trust or political party is approved and registered etc….). Thus, even if it is not allowed while computing profits still the taxpayers gets the benefit under the Act. So if the taxpayer wants to claim deduction on donations made to political party it will have to disclose the information in its return of income. Since the return of income is not a public document the same will not have any problem with respect to association with any party.

Further, the political parties can receive any amount in cash as donation. However, if it does not maintain a record of such contribution and the name and address of the person who has made such contribution, the income received in excess of INR 20,000 in cash will be taxable.

PS Also the companies Act has a limit for donations to political parties but that is only applicable to companiesProvisions of Section 293A of the companies Act restricts a limit of donation to political party to 5% of the profits with some other conditions.

Loopholes in the existing Lokpal bill

The existing Lokpal Bill proposed by the government is quite toothless and has glaring loopholes which make the whole anti-corruption exercise a sham exercise.The whole selection process,powers and member of Lokpal give rise to vested interests and would make it a fruitless bill.The deficiencies of the government version of the Lokpal are

a) Selection of 3 retired judges by the ruling government only to the Lokpal Panel.Gives rise to vested interests,Jan Lokpal advocates selection of any eminent citizen who has fought against corruption.Selection will be made by government,civil society members and judiciary.

b) Bureaucrats outside the purview of the Lokpal Bill,Speaker Power.This is a huge loophole as government bureaucrats have been found to be ringleaders in most corruption scams taking place in the country.The recent CVC case where PJ Thomas was implicated and Supreme Court had to force the government to remove him

c) No Sou Moto Recognition of Legal Cases – Complaints against the Legislature Members can only be made to the Speaker of Parliament who can decide.This makes no sense as Speakers in India have sullied their image with repeated partisanship to their party.Independent and impartial speakers in Indian parliaments are hard to find.Jan Lokpal can take Sou Moto cases

d) No Defence or Foreign Matter Jurisdiction – Again most of the large scams have taken place in Defence Deals.This has happened under the rule of both the main political parties.Bofors,HDW Submarine are some of the bigger Defence Scandals.Lokpal will have no authority to investigate these.The Jan Lokpal version allows investigations into such cases.Exceptions are only allowed in existing cases before judiciary or currently held legislation.It also imposes strict jail terms for corruption cases.

The Jan Lokpal Bill has the power to transform Indian state and system and have a major impact on transperency like the RTI Bill.However there are extremely powerful interests opposing this Bill..Hazare alleges the 9 member group of ministers who drafted the proposed draft bill are the most corrupt ministers.A lot of support and pressure is needed from the civil society and citizens to get this to move forward.

Source Indiaagainstcorruption.org

Video by Arvind kejriwal(RTI activist)

Features of Lokpal bill

A look at the salient features of Jan Lokpal Bill:

1. An institution called LOKPAL at the centre and LOKAYUKTA in each state will be set up

2. Like Supreme Court and Election Commission, they will be completely independent of the governments. No minister or bureaucrat will be able to influence their investigations.

3. Cases against corrupt people will not linger on for years anymore: Investigations in any case will have to be completed in one year. Trial should be completed in next one year so that the corrupt politician, officer or judge is sent to jail within two years.

4. The loss that a corrupt person caused to the government will be recovered at the time of conviction.

5. How will it help a common citizen: If any work of any citizen is not done in prescribed time in any government office, Lokpal will impose financial penalty on guilty officers, which will be given as compensation to the complainant.

6. So, you could approach Lokpal if your ration card or passport or voter card is not being made or if police is not registering your case or any other work is not being done in prescribed time. Lokpal will have to get it done in a month's time. You could also report any case of corruption to Lokpal like ration being siphoned off, poor quality roads been constructed or panchayat funds being siphoned off. Lokpal will have to complete its investigations in a year, trial will be over in next one year and the guilty will go to jail within two years.

7. But won't the government appoint corrupt and weak people as Lokpal members? That won't be possible because its members will be selected by judges, citizens and constitutional authorities and not by politicians, through a completely transparent and participatory process.

8. What if some officer in Lokpal becomes corrupt? The entire functioning of Lokpal/ Lokayukta will be completely transparent. Any complaint against any officer of Lokpal shall be investigated and the officer dismissed within two months.

9. What will happen to existing anti-corruption agencies? CVC, departmental vigilance and anti-corruption branch of CBI will be merged into Lokpal. Lokpal will have complete powers and machinery to independently investigate and prosecute any officer, judge or politician.

10. It will be the duty of the Lokpal to provide protection to those who are being victimized for raising their voice against corruption.

Source Ndtv.com, wikipedia, India against Corruption.org